Above is the chart of the USO which tracks oil. Oil has taken a beating in the last month. As can be seen, oil was in a steep uptrend and recently broke it and everybody has been claiming that speculators have been the cause of this bubble. We don't believe so. The way we see it, the broad channel (in blue) is what is a possibly sustainable growth in the price of oil. The green line shows what speculators did with it. Oil was getting "jammed" in a rising wedge. We got this call almost spot on even timewise, which is usually very difficult, when everyone was looking for another iteration.http://maybeitsclarke.blogspot.com/2008/07/is-oil-bubble.html
As of now, we are not short oil or (buying airlines any more, at least for the intermediate term, sure may be a quick trade here and there. For the long term, we believe airlines are attractive, but that is another story and we will believe we can get it at slightly better prices than today) which we were a few weeks back. Sure, oil is not showing signs of a bottom, but it is showing declining selling strength. We believe the USO could go down some more around the low 90s. Maybe there is one final shakeout, before ripping higher. Bullish divergences have started appearing on the chart too. This is a difficult call (for us), but as of now, we are biased towards the USO holding this channel.
On a different note, thinking the FED has coyly gotten away with prices by maintaining the most inflationary policies in the last decade doesn't give us closure. The US will have to pay the price for printing greenbacks, while the other countries around the world have been raising interest rates to > 10%.
We are on the side of those people who believe speculation only amounts for a 20-30% rise in oil prices. Fundamentals and inflation account for the rest of the 1200% increases from $12 to $144. If we are right, the time is near, when Oil will return to its rightful owners.
47 comments:
I bought AMR yesterday but cant sell until tomorrow (3 day rule). I will sell tomorrow and will walk away with a good profit as long as it doesnt open a buck down..my luck!
I respect your opionion/advice very highly. I remember you mentioned on Snot a couple of weeks that you saw some bearish divergences in AGS.. we know what happened there.
Is there any thing out there that is looking good?
New job? Investment firm?
Why can't you sell? Is it because you are using unsettled funds? It is advisable not to, especially if you buy volatile stocks, like AMR.
I am glad you made profits in AMR. I made a quick roundtrip in LCC today, as a day trade for a healthy 5% in quick time. The airlines are beginning to look extended. I don't know how much more they will act as double short oil. Looking at today's actions, maybe TSO is a good bet (on first look). Let me read the chart, I will post about it. GLTA
btw, I am a techie, my first job.
Ags are not yet dead. I am still watching the Ag leaders POT and AGU.
There is still some hope. CF and MOS just got way ahead of their others.
I don't buy that the commodity bull market is over. At least not yet.
I put a sell of 10.80 prior to open and it got to 10.70. I was in meetings all day and never got a chance to check on it.Now I am a bit nervous..
Mimi,
Here is some advice, for what it is worth, and since it doesn't come from somebody on CNBC or one on Yahoo finance pages, Barron's or Bloomberg's expert panels, etc., it probably isn't worth much:
1. Don't put all your eggs in one basket. Diversify, diversity, diversity. If you can only invest so much, then buy a mutual fund. If you can afford more than a single mutual fund, but not lots of equities, buy ETFs. when ag crashed, I didn't get hurt much, because I was in MOO, plus ag was only 20% of my holdings, plus I got out a week before you and others did. I had already made many times more on MOO than I lost that last time around. If you buy SPY or QQQQ or DDM or SSO or QLD or MVV or RXL, you own a piece of 30 or 50 or 100 equities. You don't get "best of breed" with them, but with most of those I listed, you might as well, since they are ultras (2x).
2. Worry about the downside risk first, as Cramer says, and the gains on the upside will come in time. Use stops where appropriate. Buy stocks that pay dividends or buy value stocks or buy defensive stocks (health, e.g.) or stocks with very low P/E. Don't go chasing the hot stocks, because by the time you now they are the hot stocks, everybody else does too and they will soon be overbought. Preserve your capital. Don't focus on home run stocks that you hope to make a killing on, because those tend to be high risk and for every home run, you will probably have four or five strike outs. It is better in the long run to get consistent small gains with lower risk.
3. Be patient. Buy in layers and sell in layers. It is impossible to guess a top or bottom. If you buy only 1/4 of your position, if you were too early, then the pain is less and you can wait and reconsider and possibly average down later or exit. When you have a good gain in a position, then as Cramer constantly advises people, sell 1/3 or 1/4 of it. If it keeps going up, fine. If it pulls back but the fundamentals are still the same, you can buy it back, in part with your profits. If the position starts to break down, you can begin to close it, being thankful you took some profits at the top.
4. Try to keep some dry powder ready most of the time for a buying opportunity. Don't worry about partially missing out on a rally. For every one of those you miss, you also partially missed out on a crash.
Hope you all have a good trading day and week and month and year.
H.F.
Holdings: Lots of conservative mutuals with bonds and large caps for this crazy, frightening market; equity holdings of late are a tiny bit of LDK and TAN, but mostly in and out of DDM, QLD, SSO, RXL, UCC, and MVV, buying on down days like August 7th. Selling on up days like August 5th and 6th. Sometimes timing it nicely. Sometimes timing it horribly. No conference calls to listen to. No balance sheets to read. Mostly I watch futures and the major tickers for the indexes, I read Yahoo finance page and listen to a little CNBC in premarket and manage my stops. Just a little general news helps. E.g., Walmart today reported lower sales numbers so WMT was hit 6%, so UCC was down more than most of the ultra-long ETFs. I bought heavy into UCC today. We'll know in a few days if that pays off. At least it isn't made up of a bunch of banks or plastic shoe companies, and I doubt WMT is going out of business any time soon, or Lowes, or the other components of UCC. One can use these ETFs to try some of the things recommended on this blog, e.g. a metals ETF instead of an individual gold equity or a transportation ETF instead of a single airline or an oil ETF or short-oil ETF (DIG and DUG -- not long/shorting oil itself but a basket of oil related stocks) or a materials ETF if Clarke is right that the commodity bull run is a long term one that will go beyond this current correction, even though the correction may last weeks or months.
Everyone have a good evening. Futures for Friday are up at the moment. Hopefully MBIA and Fannie Mae won't crash the market tomorrow. Maybe Fannie has already been beaten down enough with Thursday's 14% shave. Asia is mixed right now, with most indexes being less than a percent up or down.
That is very sound advice hil_field. I have learnt them the hard way. I still lose, when I go against them. Not to worry MiMi, AMR still has some legs. The bottom in oil is not in on the charts yet. We need to see a day awash with oil treated like trash. AMR will likely see 11s.
good luck to all.
also, to add to hil_feld, I like trailing stops, once you are in a profit of about 10% or so, just put on a trailing stop loss of 2-3% depending upon your greed.
Clarke, I love trailing stops. They help take the emotion out of the trade. They help you to quit saying, "It is going to come back. It is going to come back," as your money fades away. I often put in a 1% trailing stop within a minute after I purchase. In a day trade, if I don't want to sit in front of the screen all day -- who does -- I'll put a tight stop sometimes of only 30 cents or so, depending on the cost of the equity, of course. The depth of a trailing stop for me also depends on the volatility of the equity and the spread on the bid/ask, the latter of which depends on the volume. If it is low volume, it is difficult to use any sort of stop. I also don't like keeping my stops overnight, because you can get your pocket picked in the morning with an opening gap. Case in point: I bought UCC two days ago at $41.92. It closed at $42.20. I put in a sell order before the open yesterday for $42.20, since the market futures showed that yesterday was going to be a down day. I hoped only to get my money back and I would buy UCC back lots cheaper. UCC is a low volume ETF. In the opening moments my shares sold for $43.45 (actually a small percentage of them sold for $45.00 -- what a rude awakening that was for someone -- how on earth did that sell order get executed so far out of range?). I got about $1.50 per share profit. Immediately it dropped to $41.20 once the bid/ask got together and it tanked later in the day. I bought it back a dollar cheaper than I had initially. That's part of the reason I don't like to carry my stops overnight. That's what Parness recommends in his book "Power Trading, Power Living." Much of this advice, though, Mimi, applies to margin accounts where you can trade more frequently, because you don't have to worry about good faith violations and unsettled funds. Well, Fannie Mae is casting a shadow over the open today in spite of oil being down, but maybe that drop in oil will help your airline trades Mimi and Clarke and both of you will make some $$$$$$$$$$$.
Thanks airlines for a healthy profit. I am out of airlines today. This is looking way too obvious.
Infact I will buy a small tip toe position in USO should it touch 93
Clarke,
Consider DBC as an alternative to USO. It gives you a little diversity -- about 60% oil futures and the rest metal and ag futures. It is a slight bit of diversification. I'm not going to bet directly for or against oil itself. Too much of a gamble. I would rather invest in a real company that owns property, has employees, sells products and services, and has real value beyond the paper of a futures trade. It reminds me of a relative of mine who said that buying a stock was like buying a lottery ticket. He said he would rather own a lottery ticket than a share of stock. My father was shocked. He picked up the telephone off the table and said, "You would rather own a lottery ticket than a share of stock in the telephone company?" A friend of mine is doing well right now with Valero, since lower oil is helping refiners with their crack margins. I may soon start a small position in DIG. Lower oil will have a dual effect on oil stocks in general. It will help and hurt, depending on the nature of their business, but I'm thinking oil will eventually settle back into a trading range and energy stocks should look good overall after the pullback. DIG has gone from almost $130 down to about $78. That's quite a pullback, but I'll enter the position very slowly . Stops are difficult with something like DIG because it has huge intraday swings. Great for daytrading, though.
I am surprised at how strong the market rallied this morning. I went from 40% cash in my stock account yesterday to 50% margin in ultra long ETFs, since I had sold off in the previous day's rally and was buying in on the big down day. It has paid off nicely today, even though my small solar position is down with oil. UCC is up over 5% and I've sold off 2/3rds of my position in order to get off margin once again, especially going into the weekend. It paid for our winter supply of hay for our horses that we just bought today and then some. Thank you Wall Street.
hmm that is an advice hard to fight against. I will definitely consider buying DBC. Maybe the purchase can wait till this bear market rally is over. I was unnecessarily heroic in buying UNG.
I bought some SSO in the weakness this morning around 60. I will hold onto it hopefully, it will yield some profits. On a side note, our pf is up about 3% in the last 2 weeks on multiple plays on airlines, SKF and denn. I know this is not much. It would have been much more, save for the slice of UNG which we have held through the carnage.
I have not so much money to play with margins as I am just starting on my first job. I need to build a savings account before I start playing with equities. Good luck to you
If you can make 3% every 2 weeks then you will make 75% in a year and beat the tar out of 99.9% of the traders out there.
I've got a trailing stop of 50 cents behind my SSO. You are already up 3% on that trade in less than 24 hours. What I love about DDM, QLD and SSO is that they are market cap ultras. The only way they fail is if the whole market is going down the tubes. If the market is, at worst, going sideways, you can make money on them by buying on down days and selling on up days. $1.00 a share is nice. $2.00 a share is great and you already have $2.00 a share in less than one day.
All three of them also have nice volume so the bid/ask stays pretty tight. Each has its own flavor being affected, one more by oil, another more by tech and health, another more by financials, etc. but each is diversification in a single purchase.
I am still holding AMR...I may sell most of it by the end of the day.
The good luck wishes worked out for you then Mimi. Enjoy the profits.
On a more macro economic note:- Something just doesn't jive well with the overall picture. We still believe the commodity run is still early in the game. Who knows, 1 years down the road, oil is near 200$?
the argument of the bears is that demand is slowing because of world wide the demand in the US for oil is reducing. But they are forgetting that oil is measured in dollars which is essentially a token of how strong the US economy is. We all know what the situation is there. Sure the dollar may be rallying for the last two weeks. But the dollar has still not broken its 3 years downtrend and given the FRE/FNM/banking issues, it doesn't look like it. In such a scenario, I don't know how much longer the dollar can continue rallying. Demand destruction also means the economy is getting eroded by the minute, meaning the dollar will eventually have to halt.
The US cannot have it both ways, one of them has to be true, either face a recession or face an inflation spiral.
I may be wrong -- I often am -- but I believe we will go mostly sideways for another six months. That's why I'm sticking with market cap ETFs and trying to ride the waves, stay off margin and keep stops in place in case of any free fall.
I tried to start a position in DIG today after I got stopped out of all of my UCC and am now flush with lots of cash and am off margin -- which I wanted to be. I entered a starter position in DIG at $78.62 but got stopped out at $79.00 for a profit after commissions of . . . drum rolls . . . $22.00, so I can take my grandkids to McDonalds. But the stop loss worked. DIG has dropped another dollar. It is so volatile, though, that any tight stops aren't going to stay put for long.
I'm like you, Clarke. I'm not overly optimistic for the long term, so my money in mutuals is staying in conservative and moderate funds which have lots of bonds in them.
For stocks, what will Monday bring after a rally like this? Another small rally? A dip? Should I sell the rest of my ultra-longs on the rally? Should I buy some more DIG at the close? Or should I hold my SSO and buy some DIG which will be sort of a hedge?
USO is about to touch $93.00.
thanks Clarke...I finally sold AMR.
Thanks to both of you for your support and advice.
I am still holding some SSO. Hope I don't get killed on monday. I cannot make any more roundtrips, I have spent all of them on my airline trades.
I got stopped out of my SSO with a trailing stop which I purposely set very tight, since I wanted to end the week and a rally day with lots of cash. Also, I bought DIG again, a double position this time.
You will probably do better than me by holding SSO. You have already gotten about 5% or 6%, right? Another 2 or 3 days and you might get another 5%. If you get 10% out of it this trip, that's as much as some people expect to get in one year from their mutual fund.
Glad the airlines trade worked so well for both of you. I'm going into Monday hoping oil goes up for one day, taking solar with it, taking the rest of the market down for a buy opportunity (basically a repeat of Thursday), and then may Tuesday be a repeat of today. That's not asking too much is it?
I will write what I think is in store for next week over the weekend. This is truly an exciting time for the world economy.
If we get a pause or a mild sell off on Monday/Tuesday I think we end the week bullish, if we move up dramatically on Monday and then sell I think it will set up for a bearish week. Remember its options expirations week.
I like USO at $88?
Clarke, Snot has not posted for a long time on his blog...I wonder if he ok.
I have noticed that too. Sometimes he gets very busy and has a hiatus in posting. It is possible he is scouting out his new trade strategy.
On USO at $88
I don't think it will go below 92. And heeding to hil_feld's advice, DBC could be better. My personal preference is UNG. I know my take on this stands no credence, given that I have been touting it since 45. But somehow I have a feeling UNG could rip higher.The charts are not telling me anything yet. The psychology and momentum indicators are. The number of short speculators on UNG is close to an all time high. My target is around 48-49.
Also, does anyone know where I could charts of inidividual commodities. I am reading articles of cotton having fallen 50% from the peaks etc. I also spotted a recent ETF called BAL which tracks cotton. Unforunately, the ETF only trades 2000 shares per day.
Sorry cant help with the charts :), but I found this website...very interesting..
Yahoo message board
http://www.financialsense.com/Market/wrapup.htm
And this on yahoo message board..
Now I wanted to point out how parabolic situations (USO) will bounce at some point in the dropoff. The Dot com bust the NDX bounced after dropping 50%. It bounced back to a FIB .618 level before finally retracing 100% a few years later.
I have run some numbers. USO has increased from Jan 2007 low of $42.56 to an astounding $119.17 top on 11 July 2008. A price advance of $76.61 in 18 months, truly parabolic.
So if USO has its big bounce at the 50% drop off, we can expect that to occur around $80.87 (approx $100/bbl - a very pyschological support/resistance barrier). A corresponding .618 retrace upwards would take USO back to $104.53.
Now perhaps the bounce comes at the .382 Fib level. That is soon coming at $89.91 USO. A subsequent .618 FIB bounce from that level would take USO back toward $107.99.
Let me also point out that after the bounce and failing to regain the former high, USO will likely start its march south again all the way back to 100% retrace in the same amount of time it took for the original runup.
This would suggest that USO will eventually be back to $42.56 in January 2010. Also a likely scenario.
Parabolics always retrace 100%. Don't be the bagholder here! World economies may be crushed by late 2009 so it is very possible oil will indeed have no demand...
I always go here to check commodities for the day, if I am holding DBA or DBC or MOO, the first two which have components of ag futures and the latter being ag equities which can be affected in a secondary way by ag futures. By clicking around here on Bloomberg you can probably find some more long-term charts.
Link to Bloomberg commodity futures
Another method would be just to run the stats on DBA which is an ETF of five or so ag futures:
Link to Yahoo stats on DBA
Well folks, I'm tired from grading student work all day, so I'm turning in.
Oil is coming down short term. All we have to do is look at the ticker to know that. However,
Article 1
some alternative
more on peak oil
more
All from a Google board. Got to go. Breakfast is ready.
oil chart
gold
other commodities if you scroll down about 2/3rds of the way and click on the links
Thanks hil_feld. I have reading COT reports recently. The open interest in Oil is at an all time low, probably indicating the fear/uncertainity in the direction of the move market. Commercials are slightly bullish and speculators are going short oil now. It remains to be seen who wins.
If you look at NG, the COT report presents a very bullish picture in the short term. The speculators are decidely bearish and commercials bullish.
I need to find a COT charting tool. I just discovered about COT reports while I was trying to find charts of commodities yesterday. These reports are real good psychology indicators.
Thanks hil_feld. I have reading COT reports recently. The open interest in Oil is at an all time low, probably indicating the fear/uncertainity in the direction of the move market. Commercials are slightly bullish and speculators are going short oil now. It remains to be seen who wins.
If you look at NG, the COT report presents a very bullish picture in the short term. The speculators are decidely bearish and commercials bullish.
I need to find a COT charting tool. I just discovered about COT reports while I was trying to find charts of commodities yesterday. These reports are real good psychology indicators.
With Russia invading Georgia...oil will go up sooner then we thought.
I hope so, but not counting on it. I won't be surprised to see speculators sell into any rally in oil. Such mass events and actions caused by them is seldom the market direction.
I would have preferred oil getting back up on its own knees. Unfortunately for me, that means my UNG may also be in tumultuous waters.
Article from August 8th says commodity boom near anywhere near over. You can always find an expert on either side.
Link
True, just as there are two sides to a trade. If you are bullish, you would ideally want to see a lot of bears around you. I believe the commodities are correcting. The consolidation may take another 3-5 months or so in my opinion, probably until the dollar resumes its downtrend. Until then, we can look at small select strikes or shorting/buying the index.
"Small select strikes" - that's the way to go until a clear trend is established once again. I'm not going to bet the farm and not bet very long (in time) at this point. E.g., I bought DIG on Friday. When it opened up this morning, I immediately put a stop under it to preserve my profits. When it bounce up 50 cents, I moved my stop up 50 cents, knowing it would get taken out at some point. It happened within 15 minutes, but it was 2% profit on a small, overnight trade. I won't get rich on it, but I won't go broke on it either. DIG is now in the red. It is up and down like a busy elevator this morning. I'm mostly in cash right now as the market is treading water. Most of the ultras are treading water except UYM is down hard. Ferts are down hard again today at the moment.
I am waiting for the cot reports this tuesday before any step further in commodities. I already have some UNG, which had a bullish COT from last week. It is heartening to see the relative "strength" in UNG amidst the carnage, for e.g. in Gold, which have bearish COT reports. I believe there will be a short term rally in commodities etc. starting this week. Should give us a nice chance to load up on shorts. Do you know if there is an ETF which shorts STEEL/Coal stocks.
SMN does in part. DUG includes coal companies.
Is anyone aware of a site which gives a calendar for upcoming ex-dividend dates? There are numerous services which will list those for you for a fee and they give you a couple of (usually mostly worthless) freebies to bait you. It has been fun in the past to buy and hold a nice dividend stock for a day or two if I can just break even on it, and even more so if I lucky enough to get a percent on it, and then a few weeks later a nice $50 or $100 or $150 dividend shows up in your account. It is only worth trying it on stocks that pay a good dividend like T or PCU.
Commodities are crazy, man crazy. I just bought back my shares of DIG at $76.31 after selling them for $80.19 this morning after buying them for $78.45 on Friday. Hope I don't get burned. It is up a little and I can put in a stop loss for this afternoon, but if it holds, I won't leave it overnight, so I risk a gap down tomorrow. But the potential reward is a gap up tomorrow.
LDK reports after today's close. Will be interesting to see what their margins are, forward guidance and G.S.'s and Piper's response. Today LDK has traded strong compared to solar in general -- up over 3% compared to TAN being down a percentage point.
I couldn't find any good "general" site with dividends. Most of them are spam sites with stock recommendations. It is likely commodities put in a short term bottom today. Will need to see some confirmation tomorrow, before dipping more of my pf in it.
I think airlines look cooked here. The leader of the pack LUV is showing huge signs of strain. Look at the volume today on LCC, AMR,UAUA, and what a sad close, it looks like a huge transfer of shares took place to bagholders.
DIG may be a nice option here. I will dip my pinkie toe in today AH.
LDK moving big time. Wow!
I bought DXD today..
Clarke, did you USO? Also check this website out...http://www.financialsense.com/fsu/editorials/walayat/2008/0811.html
Mimi, thanks for the link. The site seems like a nice read. I did not buy USO. I am looking for confirmation tomorrow. Also, I already have some UNG. I sold all my SSO today.
DXD seems like a good bet, should we get some upside tomorrow, I will personally load up on some QID/DXD/SDS tomorrow as well. If the SPX touches 1320, it will be a nice entry point.
I think I was a bit early w/ DXD...
we will see how it plays out today.
Mimi, your DXD worked today. Nice 2% for one day. I'm on the opposite side of the fence from you now, though, so I'm hoping it doesn't work tomorrow, if you still have it. I was in DIG, solar and cash on Monday, but sold the DIG. Today I sold the LDK on the bounce and briefly was 80% in cash. This afternoon while the DOW was down, making you money with your DXD, I spent all my cash on MVV (mid-cap ultra ETF fund), so I'm hoping that Wednesday oil is down, financials don't weigh, and the market as a whole is back up. Right now futures are up slightly and afterhours were up a tiny bit for QQQQ, SPY, e.g.
If the market is up big tomorrow, that will fit the recent pattern for the DOW. (1) up big, (2) up a little, (3) down. That pattern has been true for the last --- drum roll --- six days. How's that for voodoo chart reading?
oh nice. my TWM did not work as good, so I was just able to scalp a meagre 1% profit. I am in cash except for my UNG. Looking to add CHK in the week ahead.
Still holding to DXD...I plan on selling tomorrow..I hope the market is down (at least in the morning).
Support for USO seems to be at 90-91 level..depending on inventory report we may break up or break down so I plan on getting out before the report.
I wonder if the ags has found a bottom?
Clarke, Snot posted today...
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